US Senate vote to add internet sales tax this week

The US Senate is set to vote on the Marketplace Fairness Act (MFA) on Monday, legislation that would force internet retailers to collect state and local sales taxes while giving overseas online sellers a financial leg-up.

MFA, a bill (for once) not tortuously reworded to a snappy acronym, gives businesses 90 days to set up facilities for paying tax on online purchases in accordance with state, region and city law. The legislation is aimed at making sure states get their take of online commerce in these cash-strapped times.

Proponents of the bill say that the legislation will level the playing field between bricks-and-mortar companies and online sellers at a time when the physical retail sector is suffering badly. The language of the bill will also protect smaller tech start-ups.

"There's a $1m exemption built into this," a spokesman for MFA's sponsor Mike Enzi (R, WY) told The Register. "If you have a business you can have $10m business, $1m of which can be in remote sales over the internet, and you're exempt."

Online retailers have had something of a tax holiday ever since Bill Clinton signed off on the Internet Tax Freedom Act in 1998 in order to encourage e-commerce. The legislation was enacted after the case of Supreme Court's 1992 case of Quill v. North Dakota, which ruled that states couldn't insist companies collected taxes for jurisdictions where they are not physically located.

But two decades down the line - and with budgets increasingly stretched -many states have decided to start charging sales tax on internet retailers who have operations within their jurisdiction. The MFA aims to set up a system for doing so, but opponents claim it is too broad and will harm American e-commerce.

"You might as well call this the "Shop Canada and Shop Mexico Bill'" said Senator Ron Wyden, on the floor of the Senate.

Wyden said that the legislation as it stands will make US companies have to pay taxes to over 9,600 state, regional, city and town tax authorities, Wyden's spokesman told El Reg, or possibly have to register for a reseller license. The resulting legal mish-mash will be a serious impediment to doing business online and will give smaller businesses a significant financial penalty.

Amazon.com actually supports the MFA. The online superstore is already paying taxes on online sales in nine states that have enacted legislation; first Washington and now California, Texas and others – typically states where Amazon has significant packaging and distribution operations.

"The facts in the Quill decision arose a quarter of a century ago, and the Supreme Court's decision was rendered a year before the World Wide Web was invented," said Amazon in congressional testimony last year.

"With today's computing and communications technology, widespread collection no longer would be an unconstitutional burden on interstate commerce, and Congress feasibly can authorize the states to require all but the smallest volume sellers to collect."

Jeff Bezos' behemoth has the infrastructure in place to handle the shift, and coincidentally sells a cloud service for companies looking to stay on the right side of tax law, but other internet sellers are less sanguine.

"The current Internet sales tax bill would impose unfair taxes and burdens on small businesses that use the Internet, treating them the same as large national retailers who have the resources and capabilities to collect sales taxes nationwide," said Tod Cohen, general counsel of government relations at eBay told El Reg in an email.

"eBay believes that there is a fair and simple solution: small businesses with less than 50 employees or less than $10 million in annual out-of-state sales should be exempt. We are asking the eBay community to join us in calling on Congress to protect small businesses."

Under the Congressional rules the vote, expected on Monday, will be for "cloture," which means it gets the 60 votes needed to avoid a filibuster. Another majority vote is needed to enact it – but under the protocol these days that usually occurs immediately afterwards before anyone can wander off.

The bill is expected to pass this week's vote with cross-party support and will then go through the House of Representatives. There is will face a much tougher time; over 95 per cent of the Republican House members have signed Grover Norquist's "Taxpayer Protection Pledge" that requires no new taxes and so could block the legislation.

Nevertheless, some kind of tax policy shift for US online retailers looks likely – there's simply too much tax revenue out there for legislators to ignore (although possibly not as much as they might think.) Canny IT managers should be looking into their options. ®